[Federal Register Volume 79, Number 213 (Tuesday, November 4, 2014)]
[Notices]
[Pages 65450-65463]
[FR Doc No: 2014-26127]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-73468; File No. SR-EDGX-2014-18]

Self-Regulatory Organizations; EDGX Exchange, Inc.; Notice of
Filing of Amendment Nos. 1 and 3 and Order Granting Accelerated
Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and
3, To Amend EDGX Rule 1.5 and Chapter XI Regarding Current System
Functionality Including the Operation of Order Types and Order
Instructions

October 29, 2014.

I. Introduction

    On July 16, 2014, EDGX Exchange, Inc. (``Exchange'' or ``EDGX'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend Rule 1.5 and Chapter XI of its rule book relating to the
operation of order types and order instructions on the Exchange,
trading sessions and openings and re-openings. The proposed rule change
was published for comment in the Federal Register on July 31, 2014.\3\
On September 11, 2014, the Commission extended the time period for
Commission action on the proposal to October 29, 2014.\4\ The
Commission received three comment letters from the same commenter on
the proposed rule change,\5\ as well as a letter from the Exchange
regarding the first comment letter.\6\ On October 14, 2014, the
Exchange filed Amendment No. 1 to the proposed rule change.\7\ On
October 17, 2014, the Exchange filed Amendment No. 2 to the proposed
rule change, which was later withdrawn.\8\ On October 17, 2014, the
Exchange filed Amendment No. 3 to the proposed rule change.\9\ The
Commission is publishing this Notice and Order to solicit comment on
Amendment Nos. 1 and 3 and to approve the proposed rule change, as
modified by Amendment Nos. 1 and 3, on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 72676 (July 25,
2014), 79 FR 44520 (``Notice'').
    \4\ See Securities Exchange Act Release No. 73083 (September 11,
2014), 79 FR 55850 (September 17, 2014).
    \5\ See Letters from Suzanne H. Shatto to Secretary, Commission,
dated August 19, 2014 (``Shatto Letter I''), September 18, 2014
(``Shatto Letter II'') and September 22, 2014 (``Shatto Letter
III''). The Commission believes that the comments raise general
market structure issues that are beyond the scope of the proposed
rule change.
    \6\ See Letter from Eric Swanson, EVP and General Counsel,
DirectEdge, to Secretary, Commission, dated September 12, 2014
(``Exchange Letter''). According to the Exchange, Shatto Letter I
did not raise issues germane to the instant proposed rule change,
and therefore the Exchange is not responding to the comments.
    \7\ In Amendment No. 1, the Exchange: (1) Removed the proposed
rule text related to Single Re-Price and Short Sale Single Re-Price
instructions to indicate that the Exchange will no longer offer such
functionality; (2) added language to the Post Only instruction
definition to provide that the highest possible rebate paid and the
highest possible fee will be used to determine whether an order with
a Post Only instruction will execute against orders on the EDGX
Book; (3) added rationale to the statutory basis section for
suspending the discretion of an order with a Hide Not Slide
instruction to execute at the Locking Price when a contra-side order
that equals the Locking Price is displayed by the System on the EDGX
Book in order to avoid an apparent violation of that contra-side
displayed order's priority; and (4) made a series of non-
substantive, corrective changes to the Notice. Amendment No. 1 has
been placed in the public comment file for SR-EDGX-2014-18 at http://www.sec.gov/comments/sr-edgx-2014-18/edgx201418.shtml (see letter
from Christopher Solgan, Regulatory Counsel, DirectEdge, to
Secretary, Commission, dated October 15, 2014) and also is available
on the Exchange's Web site.
    \8\ Amendment No. 2, dated October 17, 2014, was withdrawn on
October 17, 2014.
    \9\ In Amendment No. 3, the Exchange specified that upon return
to the Exchange, an order with the Routed and Returned Re-Pricing
instruction will execute against marketable contra-side liquidity
displayed on the EDGX Book. If there is no marketable contra-side
liquidity displayed on the EDGX book upon return but such Routed and
Returned Order would be displayed at a price that would be a Locking
or Crossing Quotation, then such order will be displayed at a price
that is one Minimum Price Variation lower (higher) than the Locking
Price for orders to buy (sell), will be ranked at the mid-point of
the NBBO with discretion to execute at the Locking Price. A
subsequently arriving contra-side order could suspend the Routed and
Returned Order's discretion to execute at the Locking Price.
Amendment No. 3 has been placed in the public comment file for SR-
EDGX-2014-18 at http://www.sec.gov/comments/sr-edgx-2014-18/edgx201418.shtml (see letter from Christopher Solgan, Regulatory
Counsel, DirectEdge, to Secretary, Commission, dated October 17,
2014) and also is available on the Exchange's Web site.
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II. Background

    The proposed rule change, as described in more detail below and in
the Notice, amends Rule 1.5 and

Chapter XI of the EDGX rule book, relating to: (1) The Exchange's
trading sessions and hours of operation; (2) the process for initial
opening and re-opening after a trading halt by adding proposed Exchange
Rule 11.7, Opening Process; (3) order type, order type instructions and
System \10\ functionality; (4) the execution priority of orders; and
(5) organizational and conforming amendments.\11\ According to the
Exchange, these changes are designed to update its rule book to reflect
current system functionality and to propose four new System
functionalities, as described in more detail below.\12\
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    \10\ Exchange Rule 1.5(cc) defines ``System'' as ``the
electronic communications and trading facility designated by the
Board through which securities orders of Users are consolidated for
ranking, execution and, when applicable, routing away.''
    \11\ The Exchange also proposes moving text from Footnote 4 of
the Exchange's Fee Schedule into proposed Exchange Rule 11.21.
    \12\ See also Notice, supra note 3. The four new System
functionalities are as follows: (1) Proposed Rule 11.7(c).
Alternatively set the price of the Opening Process for securities
listed on either the New York Stock Exchange, Inc. (``NYSE'') or
NYSE MKT LLC (``NYSE MKT'') at the midpoint of the then prevailing
National Best Bid and Offer (``NBBO'') when the first two-sided
quotation published by the listing exchange after 9:30:00 a.m.
Eastern Time, but before 9:45:00 a.m. Eastern Time if no first trade
is reported by the listing exchange within one second of publication
of the first two-sided quotation by the listing exchange; (2)
Proposed Rule 11.7(e). Alternatively set the price of a re-opening
at the midpoint of the then prevailing NBBO when the first two-sided
quotation is published by the listing exchange following the
resumption of trading after a halt, suspension, or pause if no first
trade is reported within one second of publication of the first two-
sided quotation by the listing exchange; (3) Proposed Rule
11.6(j)(1). Require that an order with a Market Peg instruction that
is to be displayed by the System on the EDGX Book include an offset
equal to or greater than one Minimum Price Variation; and (4)
Proposed Rule 11.6(n)(4). Permit an order with a Post Only
instruction to execute against an order resting on the EDGX Book
where it is eligible to receive price improvement as described under
the proposed rule.
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III. Discussion and Commission Findings

    After careful review of the proposed rule change and the comments
received, the Commission finds that the proposed rule change, as
modified by Amendment Nos. 1 and 3, is consistent with the requirements
of the Act and the rules and regulations thereunder applicable to a
national securities exchange.\13\ In particular, as described in more
detail below, the Commission finds that the proposed rule change, as
modified by Amendment Nos. 1 and 3, is consistent with Section 6(b)(5)
of the Act,\14\ which requires, among other things, that the rules of a
national securities exchange be designed to prevent fraudulent and
manipulative acts and practices, to promote just and equitable
principles of trade, to 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. This order
approves the proposed rule change in its entirety, although only
certain more significant aspects of the proposed rules are discussed
below.
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    \13\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
    \14\ 15 U.S.C. 78f(b)(5).
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A. Exchange Trading Sessions and Hours of Operation

    Currently, Exchange Rule 11.1(a) provides that orders may be
entered, executed or routed away during Regular Trading Hours, the Pre-
Opening Session, and the Post-Closing Session, but does not define
those terms. The Exchange proposes to add the term ``Session
Indicator'' to codify the manner that a User \15\ may elect the trading
sessions for which its orders are eligible for execution. The Exchange
also proposes to describe the terms Regular Trading Hours, Pre-Opening
Session and Post Closing Session as Session Indicators, and specify the
time frames that orders with such indicators would be eligible for
execution. Similarly, the Exchange proposes to add and describe the
terms ``Regular Session'' and ``All Sessions'' as Session Indicators to
codify additional options that a User may elect to establish the
trading sessions and time frames that an order may be eligible for
execution.
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    \15\ The term ``User'' is defined as ``any Member or Sponsored
Participant who is authorized to obtain access to the System
pursuant to Rule 11.3.'' See Exchange Rule 1.5(ee).
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    Proposed Exchange Rule 11.1(a)(1), describing the term Session
Indicator, specifies that all orders are eligible for execution during
the Regular Session, and that orders not designated for a particular
session or session would default to the Regular Session. The proposed
rule also specifies that orders may be entered from 6:00 a.m. until
8:00 p.m. Eastern Time but are not eligible for execution until the
start of the session selected by the User.
    Proposed Exchange Rule 11.1(a)(1)(A) specifies that orders
designated as Pre-Opening Session would be eligible for execution
between 8:00 a.m. Eastern Time and 4:00 p.m. Eastern Time. Proposed
Exchange Rule 11.1(a)(1)(B) specifies that orders designated as Regular
Session would be eligible for execution between the completion of the
Opening Process or a Contingent Open,\16\ whichever occurs first, and
4:00 p.m. Eastern Time. Proposed Exchange Rule 11.1(a)(1)(C) specifies
that orders designated as Post-Closing Session would be eligible for
execution between the start of the Regular Session and 8:00 p.m.
Eastern Time. Proposed Exchange Rule 11.1(a)(1)(D) specifies that
orders designated as All Sessions would be eligible for execution
between 8:00 a.m. Eastern Time and 8:00 p.m. Eastern Time.
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    \16\ See proposed Exchange Rule 11.7(d).
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    The Commission believes that the proposed rules relating to the
Exchange trading sessions and hours of trading are consistent with the
Act. The proposed rule makes the operation of the Exchange more
transparent which should benefit Members, Users, and the general
investing public. The Commission also notes that the proposed rule is
substantially similar to that of other exchanges.\17\
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    \17\ See Nasdaq Rules 4751(h) and 4617; see also International
Securities Exchange (``ISE'') Rule 2102, BATS Rules 1.5(c), (r),
(w), 11.1 and 11.9(b).
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B. Process for Initial Opening and Re-Opening

    The Exchange's current rules make various references to, but do not
describe, an Opening Process. Accordingly, the Exchange proposes
Exchange Rule 11.7 to codify and describe its current Opening and Re-
Opening processes, with two changes, which are described below.
    Proposed Exchange Rule 11.7(a) describes the entry and cancellation
of orders before the Opening Process. Specifically, prior to the
Regular Session, Users may enter orders to participate in the Opening
Process. All orders are eligible to participate during the Opening
Process, except (1) orders with a Stop Price \18\ or Stop Limit
instruction,\19\ (2) Limit Orders with a Post Only,\20\ Fill-or-Kill
(``FOK'') or Immediate or Cancel (``IOC'') instruction, (3) Intermarket
Sweep Orders (``ISOs'') or (4) orders cancelled before the Opening
Process. Orders ineligible to participate in the Opening Process, but
designated for the Regular Session, would not be accepted by the System
on the EDGX Book \21\ until the completion of the Opening Process or
the initiation of a Contingent Open as set forth by proposed Exchange
Rule 11.7.
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    \18\ See proposed Exchange Rule 11.8(a)(1) discussed below in
Section III.C.2.a.
    \19\ See proposed Exchange Rule 11.8(b)(1) discussed below in
Section III.C.2.b.
    \20\ See proposed Exchange Rule 11.6(n)(4) discussed below in
Section III.C.1.m.
    \21\ The term ``EDGX Book'' is defined as ``the System's
electronic file of orders.'' See Exchange Rule 1.5(d).
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    Proposed Exchange Rule 11.7(b) describes the execution of orders
during the Opening Process. Specifically, during the Opening Process
the

Exchange would attempt to execute all eligible orders by matching buy
and sell orders, in time sequence, at the midpoint of the NBBO, and
would continue until either there were no orders to be matched or there
was a remaining imbalance of orders. If the Opening Process resulted in
no orders being matched, or a remaining imbalance of orders, the
unexecuted orders would then be posted on the EDGX Book, canceled,
executed, or routed to an away Trading Center pursuant to proposed
Exchange Rule 11.11.
    Proposed Exchange Rule 11.7(c) describes how the opening price is
determined during the Opening Process. Specifically, for securities
listed on either the NYSE or NYSE MKT, the Opening Process would set
the opening price at the midpoint based on the: (1) First NBBO
subsequent to the first reported trade on the listing exchange after
9:30:00 a.m. Eastern Time; or (2) the prevailing NBBO when the first
two-sided quotation published by the listing exchange after 9:30:00
a.m. Eastern Time, but before 9:45:00 a.m. Eastern Time if no first
trade is reported by the listing exchange within one second of
publication of the first two-sided quotation by the listing
exchange.\22\ For any other listing market, the Opening Process would
be priced at the midpoint of the first NBBO disseminated after 9:30:00
a.m. Eastern Time.
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    \22\ Currently for NYSE and NYSE MKT listed securities, the
Opening Process sets the opening price based on the midpoint of the
first NBBO subsequent to the first-reported trade on the listing
exchange after 9:30:00 a.m. Eastern Time.
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    Proposed Exchange Rule 11.7(d) describes the Contingent Open. A
Contingent Open would result if the Opening Process did not yield an
opening price by 9:45:00 a.m. Eastern Time. In such an instance, the
order would either be posted to the EDGX Book, routed, canceled, or
executed consistent with its order type instruction, except that a
MidPoint Match (``MPM'') Order, would be ineligible for execution until
an opening price had been determined pursuant to the Opening Process.
    Proposed Exchange Rule 11.7(e) describes Re-Openings. A Re-Opening
would occur after a trading halt, suspension or pause. The Re-Opening
price would be the midpoint of the: (1) First NBBO subsequent to the
first reported trade on the listing exchange following the resumption
of trading after a halt, suspension, or pause; or (ii) then prevailing
NBBO when the first two-sided quotation published by the listing
exchange following the resumption of trading after a halt, suspension,
or pause if no first trade is reported by the listing exchange within
one second of publication of the first two-sided quotation by the
listing exchange.\23\
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    \23\ Currently, the Re-Opening price of a security is determined
by the midpoint of the first NBBO subsequent to the first-reported
trade on the listing exchange following the resumption of trading
after a halt, suspension, or pause.
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    The Commission finds that the proposed rule to codify the Exchange
Opening Process, Contingent Open and Re-Openings is consistent with the
Act. The Commission believes that the proposed rule is reasonably
designed to facilitate an orderly transition between the Pre-Opening
Session and Regular Trading Hours, as well as the resumption of trading
after a trading halt, suspension or pause. Finally, the Commission
notes that the Exchange rule is based on ISE Rule 2106.\24\
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    \24\ Unlike ISE Rule 2106, proposed Exchange Rule 11.7 provides
for late openings under certain conditions and permits the opening
price for securities listed on either the NYSE or NYSE MKT to be
priced at the midpoint of either the first NBBO subsequent to the
first reported trade on the listing exchange after 9:30:00 a.m.
Eastern Time; or the prevailing NBBO when the first two-sided
quotation published by the listing exchange after 9:30:00 a.m.
Eastern Time, but before 9:45:00 a.m. Eastern Time if no first trade
is reported by the listing exchange within one second of publication
of the first two-sided quotation by the listing exchange. See
Securities Exchange Act Release No. 54287 (August 8, 2006), 71 FR
46947 (August 15, 2006).
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C. Order Types, Order Type Instructions and System Functionality Under
Chapter XI

1. Definitions--Proposed Exchange Rule 11.6
    As discussed in more detail below, proposed Exchange Rule 11.6
would relocate and reclassify various terms currently defined in the
Exchange rulebook, as well as add certain other defined terms. The
Exchange proposes to classify certain existing order types as
``instructions'' to be attached to one or more standalone order
types.\25\
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    \25\ Under the proposal, the only standalone order types would
be Market Orders, Limit Orders, ISOs, MidPoint Match Orders, NBBO
Offset Peg Orders, and Route Peg Orders. See infra Sections
III.C.2.a-III.C.2.f, regarding proposed Exchange Rule 11.8, Order
Types.
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    The Commission notes that several proposed modifications to
existing definitions are substantively similar to the current rule
text, with added specificity, including: Attributable, Non-
Attributable, Crossing Quotation, Locking Quotation, Minimum Price
Variation,\26\ Pegged, Permitted Price, Reserve Quantity, certain
routing (Destination Specified and Destination-on-Open) and time-in-
force (Immediate or Cancel and Fill-or-Kill) instructions.\27\ Although
the Exchange did not previously define Cancel Back or Displayed, the
Commission notes that these terms are consistent with existing rule
text.
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    \26\ See Notice, supra note 3, at 44524, note 29 regarding one
non-substantive edit to remove the phrase indications of interest.
    \27\ The Exchange also proposes to delete two additional time-
in-force instructions of Good-'til-Cancel and Good-'til-Day, that
are not currently offered by the Exchange.
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    Certain other proposed modifications to existing Exchange
definitions are consistent with the rules of other exchanges,
including: Discretionary Range,\28\ Non-Displayed,\29\ certain routing
instructions (Book Only and Post Only),\30\ and units of trading (Round
Lot, Odd Lot and Mixed Lot).\31\ Similarly, a number of proposed new
definitions/terms are consistent with the rules of exchanges,
including: Locking Price,\32\ Minimum Execution Quantity,\33\ pegging
instructions (Market Peg and Primary Peg),\34\ Replenishment
Amount,\35\ time-in-force instruction of Good-'til-Time.\36\ Finally,
several proposed new definitions/terms are consistent with the
definitions contained in Commission rules Regulation SHO and Regulation
NMS, including: Short Sale, Short Exempt and Trading Center.
Accordingly, the Commission believes that the proposed rule changes
related to these definitions/terms are consistent with the Act.
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    \28\ See Nasdaq Rule 4751(f)(1), and NYSE Arca Rule 7.31(h)(2).
    \29\ See Nasdaq Rule 4751(e)(3), and BATS Rule 11.9(c)(11); see
also EDGA Rule 11.5(c)(8).
    \30\ See BATS Rule 11.9(c)(4) (BATS Only Order), BATS-Y Rule
11.9(c)(4) (BATS Only Order), NSX Rule 11.11(c)(6) (NSX Only Order);
BATS Rule 11.9(c)(6) (BATS Post Only Order) and BATS-Y Rule
11.9(c)(6); see also NYSE Rule 13 (Add Liquidity Only Modifier) and
NYSE Arca Rule 7.31(nn) (Adding Liquidity Only Order).
    \31\ See Nasdaq Rule 4751(g) (definition of ``Order Size'').
    \32\ See, e.g., BATS Rule 11.13(a)(1).
    \33\ See, e.g., Nasdaq Rule 4751(f)(5), and NSX Rule
11.11(c)(2)(B).
    \34\ See, e.g., NYSE Rule 13 (defining Pegging Interest), and
Nasdaq Rule 4751(f)(4).
    \35\ See, e.g., Nasdaq Rule 4751(f)(2) (Reserve Orders) and NYSE
Rule 13 (Reserve Order Types).
    \36\ See Chicago Stock Exchange, Inc. (``CHX'') Rules Art. 1,
Rule 2(d)(3) (Good 'Til Date), BATS Rule 11.9(b)(4) (Good 'til Day),
BATS-Y Rule 11.9(b)(4) (Good 'til Day), and Nasdaq Rule 4751(h)(4)
(System Hours Expire Time).
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a. Attributable and Non-Attributable
    The Exchange currently defines the terms ``Attributable Order'' and
``Non-Attributable Order'' in Exchange Rules 11.5(c)(18) and (19). The
Exchange proposes to reclassify these terms as order type instructions
and relocate them to proposed Exchange Rule 11.6(a). In addition, the
Exchange proposes to amend the terms to provide that: (1) Unless the
User elects

otherwise, all orders will be automatically defaulted by the System to
Non-Attributable; and (2) a User may elect an order to be Attributable
on an order-by-order basis or instruct the Exchange to default all its
orders as Attributable on a port-by-port basis, except if a User
instructs the Exchange to default all its orders as Attributable on a
particular port, such User would not be able to designate any order
from that port as Non-Attributable. The Exchange also proposes to
provide that a User's MPID will be visible via the Exchange's Book Feed
if an Attributable instruction is attached to an order and not visible
if an order Non-Attributable is attached to an order.
b. Cancel Back
    The Exchange proposes to add the defined term ``Cancel Back'' to
codify the existing function where a User may opt to have the System
cancel the order at the time of receipt, in lieu of a re-pricing
instruction \37\ to comply with Regulation NMS, Regulation SHO, or the
National Market System Plan to address extraordinary market volatility
(the ``LULD Plan'').\38\
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    \37\ The re-pricing instructions are defined in proposed
Exchange Rule 11.6(l) discussed infra Section III.C.1.k.
    \38\ See Appendix A to Securities Exchange Act Release No. 67091
(May 31, 2012), 77 FR 33498 (June 6, 2012).
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c. Discretionary Range
    The Exchange currently defines a ``Discretionary Order'' in
Exchange Rule 11.5(c)(13). The Exchange proposes to reclassify this
function as an order type instruction and relocate the term
``Discretionary Range'' to proposed Exchange Rule 11.6(d). In addition,
the Exchange proposes to modify the definition of Discretionary Range
to specify which order types\39\ may include a Discretionary Range
instruction, and how the Discretionary Range operates. Specifically,
the term Discretionary Range would be defined as an instruction that
may accompany an order to buy (sell) a stated amount of a security at a
specified, displayed price with discretion to execute up (down) to a
specified, non-displayed price.\40\ The proposal also codifies that the
Discretionary Range of an order to buy (sell) cannot be more than $0.99
higher (lower) than the order's displayed price, and that a resting
order with a Discretionary Range instruction would execute at its least
aggressive price when matched for execution against an incoming order
with a Discretionary Range instruction, as permitted by the terms of
both the incoming and resting order.
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    \39\ Under proposed Exchange Rule 11.8(b)(8), Limit Orders can
include a Discretionary Range instruction.
    \40\ The Exchange proposes to modify the existing rule text to
make state that an order with a Discretionary Range maintains the
ability to execute at its displayed price with discretion to execute
at prices to and including a specified, non-displayed price, and not
exclusively at those prices. The Discretionary Range may include
prices to and more aggressive than the midpoint of the NBBO.
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d. Display Options
    The Exchange proposes to include definitions of ``Displayed'' and
``Non-Displayed'' in proposed Exchange Rule 11.6(e). Currently the term
Displayed is not defined within the Exchange rules. The Exchange would
codify that Displayed is the default instruction for all display-
eligible orders on the EDGX Book.
    Currently, the term Non-Displayed Order is defined in Exchange Rule
11.5(c)(8). The Exchange proposes to reclassify this term as an order
type instruction, and relocate the amended term to proposed Exchange
Rule 11.6(e). In order to reflect its current operation, the Exchange
proposes to delete the current rule language stating that the System
will not accept Non-Displayed Orders that are priced better than the
midpoint of the NBBO, and codify that the Exchange currently accepts
orders with a Non-Displayed instruction that are priced better than the
midpoint of the NBBO. The proposed rule change also codifies that an
order with a Non-Displayed instruction may include a Cancel Back
instruction under proposed Exchange Rule 11.6(b), or a re-pricing
instruction pursuant to proposed Exchange Rule 11.6(l)(3) described
below.\41\ The proposed definition of Non-Displayed also differs from
the current definition in that it deletes rule text regarding the
priority and ranking of Non-Displayed Orders because proposed Exchange
Rule 11.9 sets forth the priority and ranking of all orders.
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    \41\ See infra Section III.C.1.k.iii entitled, ``Re-Pricing of
Orders with a Non-Displayed Instruction.''
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e. Locking Price
    Under current Exchange Rule 11.5(c)(4), a re-pricing instruction to
comply with Regulation NMS may be triggered if an incoming order, if
displayed at its limit price, would be a Locking Quotation.\42\ In
order to specify the price that triggers a Regulation NMS re-pricing
instruction the Exchange proposes to define the term, ``Locking
Price,'' as the ``price of an order to buy (sell) that, if, upon entry
into the System, or upon return to the System after being routed away,
and displayed by the System on the EDGX Book, it would be a Locking
Quotation.'' \43\
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    \42\ The term Locking Quotation is proposed to be defined in
Exchange Rule 11.6(g), and is further discussed below.
    \43\ The term, ``Locking Price'' is similarly defined in the
rules of other exchanges. See, e.g., BATS Rule 11.13(a)(1), which
defines ``locking price'' as ``. . . prices equal to displayed
orders on the other side of the market.''
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f. Locking Quotation and Crossing Quotations
    Currently, Exchange Rule 11.16 defines the terms ``Locking
Quotation'' \44\ and ``Crossing Quotation.'' \45\ The Exchange proposes
to relocate the amended terms, respectively, to proposed Exchange Rule
11.6(c) and (g). The amended definitions specify that the display of
either a Locking or Crossing Quotation would violate Rule 610(d) of
Regulation NMS and that Regulation NMS re-pricing instructions are
applicable outside of Regular Trading Hours.
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    \44\ Locking Quotation is defined as ``[t]he display of a bid
for an NMS stock during regular trading hours at a price that equals
the price of an offer for such NMS stock previously disseminated
pursuant to an effective national market system plan, or the display
of an offer for an NMS stock during regular trading hours at a price
that equals the price of a bid for such NMS stock previously
disseminated pursuant to an effective national market system plan.''
    \45\ A Crossing Quotation is defined as ``[t]he display of a bid
(offer) for an NMS stock during Regular Trading Hours at a price
that is higher (lower) than the price of an offer (bid) for such NMS
stock previously disseminated pursuant to an effective national
market system plan.''
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g. Minimum Execution Quantity
    The Exchange proposes to define the term ``Minimum Execution
Quantity'' as an order type instruction.\46\ Although it is currently
available, the Minimum Execution Quantity function is not currently
defined by Exchange rules. The Minimum Execution Quantity would be an
order type instruction, combined with a Non-Displayed instruction,
which would only execute the order to the extent that a minimum
quantity could be satisfied by an execution against a single order or
multiple aggregated orders simultaneously. An order with a Minimum
Execution Quantity instruction could partially execute if the execution
size equaled or exceeded the quantity provided in the instruction. The
Exchange also proposes that any shares remaining after a partial
execution would continue to be executed at a size equal to or exceeding
the quantity provided with the instruction, unless the User elects
otherwise. The Minimum Execution

Quantity instruction would not be applicable if after a partial
execution the remaining shares were less than the quantity provided in
the instruction.
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    \46\ The minimum execution quantity instruction is available on
other exchanges. See, e.g., Nasdaq Rule 4751(f)(5), and National
Stock Exchange, Inc. (``NSX'') Rule 11.11(c)(2)(B).
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h. Minimum Price Variation
    Exchange Rule 11.7, Price Variation, currently defines the term
``Price Variation.'' \47\ The Exchange proposes to relocate the term
``Minimum Price Variation'' to proposed Exchange Rule 11.6(i) and amend
the term to remove the obsolete term, ``indications of interest.'' \48\
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    \47\ The Exchange's existing definition of Price Variation in
Exchange Rule 11.7 sets forth that bids, offers, or orders in
securities traded on the Exchange shall not be made in an increment
smaller than: (1) $0.01 if those bids, offers, or orders are priced
equal to or greater than $1.00 per share; or (2) $0.0001 if those
bids, offers, or orders are priced less than $1.00 per share; or (3)
any other increment established by the Commission for any security
which has been granted an exemption from the minimum price increment
requirements of Rule 612(a) or 612(b) of Regulation NMS. See current
Exchange Rule 11.7
    \48\ See Securities Exchange Act Release No. 64095 (March 18,
2011), 76 FR 16446 (March 23, 2011) (SR-EDGX-2011-06).
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i. Pegged
    Currently the term ``Pegged Order'' is defined under Exchange Rule
11.5(c)(6). The Exchange proposes to reclassify the term as an
instruction and relocate the term to proposed Exchange Rule 11.6(j).
The amended definition of a Pegged instruction would continue to
indicate that: (1) A User may specify that the order's price will peg
to a price a certain amount away from the NBB or NBO (offset); (2) if
an order with a Pegged instruction displayed on the Exchange would lock
the market, the price of the order will be automatically adjusted by
the System to one Minimum Price Variation below the current NBO (for
bids) or to one Minimum Price Variation above the current NBB (for
offers); (3) a new time stamp is created for the order each time it is
automatically adjusted; and (4) orders with a Pegged instruction are
not eligible for routing pursuant to proposed Exchange Rule 11.11.
    The Exchange also proposes to codify that orders with Pegged
instructions would not be used to calculate the NBBO, and buy/sell
orders with a Pegged instruction would be cancelled when the NBB/NBO is
unavailable. In addition, the Exchange would codify the terms ``Primary
Peg'' and ``Market Peg.'' \49\ Proposed Exchange Rule 11.6(j) would
specify that a Pegged instruction may be a Market Peg, which would
track NBB, for a sell order, or the NBO, for a buy order; or a Primary
Peg, which would track the NBB, for a buy order, or the NBO, for a sell
order. The Exchange would also sets forth that a buy (sell) order with
a Market Peg instruction and a Displayed instruction must have an
offset that is equal to or greater than one Minimum Price Variation
below (above) the NBO (NBB) that the order is pegged to.\50\ The
amended term would also specify that if a User does not select an
offset, the System would automatically include an offset that is equal
to one Minimum Price Variation below (above) the NBO (NBB) that the
order is pegged to. For an order with a Non-Displayed instruction, a
User could, but would not be required to, select an offset for an order
to buy (sell) that is equal to or greater than one Minimum Price
Variation below (above) the NBO (NBB) to which the order is pegged.
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    \49\ The Primary Peg and Market Peg order instructions are
available on other exchanges. See, e.g., NYSE Rule 13 (defining
Pegging Interest), and Nasdaq Rule 4751(f)(4).
    \50\ Previously, the System permitted a displayable Market Peg
instruction to include a zero-offset.
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    Proposed Exchange Rule 11.6(j) also sets forth that a buy (sell)
order with a Primary Peg instruction could, but would not be required
to, select an offset equal to or greater than one Minimum Price
Variation \51\ above or below the NBB or NBO that the order is pegged
to. As proposed, an order with a Primary Peg instruction would be
eligible to join the Exchange's BBO if the EDGX Book was locked or
crossed by another market, but if an order with a Primary Peg
instruction would create a Locking Quotation or Crossing Quotation, the
price of the order would be automatically adjusted by the System to one
Minimum Price Variation below/above the current NBO/NBB. The Exchange
also codifies that, under proposed Exchange Rule 11.6(l)(3), discussed
below, an order with a Pegged and Non-Displayed instruction that is
priced more aggressively than the midpoint of the NBBO, would be ranked
at the midpoint with discretion to execute to the price established by
the offset, or the NBB (NBO) where the offset for an order to sell
(buy) is equal to or more aggressive than the NBB (NBO).\52\
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    \51\ As discussed supra in Section III.C.1.h, the term Minimum
Price Variation is defined in proposed Exchange Rule 11.6(i).
    \52\ The Exchange provides examples of the operation of Limit
Orders with a Pegged Instruction. See Notice, supra note 3, at
44525.
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j. Permitted Price
    The Exchange currently defines the term ``Permitted Price'' in
Exchange Rule 11.5(c)(4)(B).\53\ The Exchange proposes to relocate the
term, without amendment, to proposed Exchange Rule 11.6(k)
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    \53\ The current definition provides that a short sale order,
subject to the Exchange's short sale price sliding process, will
``be re-priced to display at one Minimum Price Variation above the
current NBB.''
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k. Re-Pricing Instructions
    The terms ``displayed price sliding'' \54\ and ``short sale price
sliding process'' \55\ are currently defined in Exchange Rule
11.5(c)(4)(A) and (B), respectively. However, the Exchange currently
offers multiple re-pricing instructions designed to permit Users to
comply, separately and respectively, with Rule 610(d) of Regulation NMS
or Rule 201 of Regulation SHO. The Exchange proposes to replace the
definitions for displayed price sliding process and the short sale
price sliding process with proposed Exchange Rule 11.6(l), which would
codify three re-pricing options for Regulation NMS (Price Adjust, Hide
Not Slide, and Routed and Returned Re-Pricing) and the two re-pricing
options for Regulation SHO (Short Sale Price Adjust and Short Sale
Price Sliding), all of which are currently available on the

System.\56\ The Exchange also proposes to codify the re-pricing
instruction for orders with a Non-Displayed instruction, which also is
currently available on the System but not reflected in the current
rules.
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    \54\ The ``displayed price sliding process'' is currently
described under Exchange Rule 11.5(c)(4)(A) as follows: ``An EDGX
Only Order that, at the time of entry, would cross a Protected
Quotation will be re-priced to the locking price and ranked at such
price in the EDGX Book. An EDGX Only Order that, if at the time of
entry, would create a violation of Rule 610(d) of Regulation NMS by
locking or crossing a Protected Quotation will be displayed by the
System at one minimum price variation (``MPV'') below the current
NBO (for bids) or to one MPV above the current NBB (for offers)
(collectively, the ``displayed price sliding process''). In the
event the NBBO changes such that the EDGX Only Order at the original
locking price would not lock or cross a Protected Quotation, the
order will receive a new timestamp, and will be displayed at the
original locking price.''
    \55\ The ``short sale price sliding process'' is currently
described under Exchange Rule 11.5(c)(4)(B)-(C) as follows: ``An
EDGX Only Order that, at the time of entry, could not be executed or
displayed pursuant to Rule 201 of Regulation SHO will be re-priced
by the System to prevent execution or display at or below the
current NBB (such entire process called the ``short sale price
sliding process''). Any EDGX Only order subject to such re-pricing
by the System will be re-priced to display at one MPV above the
current NBB (``Permitted Price''). Following the initial adjustment
provided for in this paragraph (B), the EDGX Only Order will, to
reflect declines in the NBB, continue to be re-priced at the lowest
Permitted Price down to the order's original limit price, or if a
market order, until the order is filled. The order will receive a
new timestamp each time it is re-priced. Alternatively, following
the initial adjustment provided for in paragraph (B), the EDGX Only
Order may, in accordance with the User's instructions, provided that
in all cases the display or execution of such lower prices does not
violate Rule 201 of Regulation SHO: (i) Be re-priced one additional
time to a price that is above the current NBB but equal to the NBB
at the time the EDGX Only Order was received and receive a new
timestamp; or (ii) not be adjusted further. In the event the NBB
changes such that the price of a Non-Displayed Order subject to
short sale price sliding would lock or cross the NBB, the Non-
Displayed Order will receive a new timestamp, and will be re-priced
by the System to a Permitted Price. EDGX Only Orders marked ``short
exempt'' shall not be subject to the short sale price sliding
process.''
    \56\ Other exchanges utilize re-pricing processes. See e.g., CHX
Art. I, Rule 2(b)(1)(C), BATS Rules 11.9(c)(4), (6) and 11.9(g)(2),
BATS-Y Exchange, Inc. (``BATS-Y'') Rules 11.9(c)(4), (6) and
11.9(g)(2), and Nasdaq's ``Re-pricing of Orders during Short Sale
Period'' described in Nasdaq Rule 4763(e). In Amendment No. 1, the
Exchange removed the proposed Single Re-Price and Short Sale Single
Re-Price pricing instructions. See supra note 7.
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i. Re-Pricing Instructions To Comply With Rule 610(d) of Regulation NMS
    Proposed Exchange Rule 11.6(l)(1)(A) would codify the Price Adjust
instruction. Specifically, under the proposed rule, a User may select,
or be defaulted by the System,\57\ to the Price Adjust instruction
where an incoming order that would be a Locking Quotation or Crossing
Quotation would be displayed and ranked \58\ at a price that is one
Minimum Price Variation lower (higher) than the Locking Price.\59\
Subsequently, the order would be displayed and ranked by the System on
the EDGX Book at the Locking Price if the NBBO changed such that the
order, if displayed at the Locking Price, would not be a Locking
Quotation or Crossing Quotation, including where an ISO with a time-in-
force (``TIF'') instruction of Day is entered into the System and
displayed on the EDGX Book on the same side of the market as the order
at a price that is equal to or more aggressive than the Locking
Price.\60\ The order would not be subject to further re-ranking and
would be displayed by the System on the EDGX Book at the Locking Price
until executed or cancelled by the User. The order would receive a new
time stamp at the time an order is re-ranked.\61\ Pursuant to proposed
Exchange Rule 11.9, all orders that are re-ranked and re-displayed
pursuant to the Price Adjust instruction would retain their comparative
priority based on the time of initial receipt by the System.\62\
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    \57\ Pursuant to proposed Exchange Rule 11.8, an order that
would be a Locking Quotation or Crossing Quotation at the time of
entry, will be automatically defaulted by the System to the Price
Adjust instruction, unless the User affirmatively elects: (1) The
Cancel Back instruction; or (2) the Hide Not Slide instruction.
    \58\ For purposes of the description of the re-pricing
instructions under proposed Rule 11.6(l), the terms ``ranked'' and
``priced'' are synonymous and used interchangeably.
    \59\ Other exchanges offer similar functionality. See Nasdaq
Rule 4751(f)(7) (Price to Comply Order), BATS Rule 11.9(g)(2) (Price
Adjust), BATS Rule 11.9(g)(1) (Display-Price Sliding), BATS-Y
11.9(g)(1) (Display-Price Sliding), and CHX Rule Art. I, Rule
2(b)(1)(C)(i) (NMS Price Sliding).
    \60\ See Division of Trading and Markets: Response to Frequently
Asked Questions Concerning Rule 611 and Rule 610 of Regulation NMS,
Question 5.02, available at http://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm (last visited October 28, 2014).
    \61\ See proposed Exchange Rule 11.9 in Section III.C., infra,
for discussion on priority.
    \62\ The Exchange provides examples of the operation of a Price
Adjust Instruction. See Notice, supra note 3, at 44526.
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    Proposed Exchange Rule 11.6(l)(1)(B) would codify the Hide Not
Slide instruction. Specifically, under the proposed rule, if a User
selects the Hide Not Slide instruction, an incoming order that would be
a Locking Quotation or Crossing Quotation would be displayed at a price
that is one Minimum Price Variation lower (higher) than the Locking
Price and ranked at the midpoint of the NBBO with discretion to execute
at the Locking Price; provided, however, that if at the time of entry a
contra-side order equal to the Locking Price is displayed by the
System, the order would be ranked at the midpoint of the NBBO with its
discretion to execute to the Locking Price suspended. Discretion to
execute to the Locking Price would remain suspended until the contra-
side displayed order equal to the Locking Price is cleared. Where the
NBBO changes such that the order, if displayed at the Locking Price
would not be a Locking Quotation, the System would rank and display the
order at the Locking Price. Thereafter, the order would not be subject
to further re-ranking and would be displayed by the System at the
Locking Price until it is executed or cancelled by the User. The order
would receive a new time stamp when it is ranked at the Locking Price.
Pursuant to proposed Exchange Rule 11.9, all orders that are re-ranked
and re-displayed by the System pursuant to the Hide Not Slide
instruction would retain its comparative priority based upon the time
of initial receipt by the System.\63\
---------------------------------------------------------------------------

    \63\ Orders that are re-ranked and re-displayed pursuant to the
Hide Not Slide instruction maintain the same priority as orders that
are re-ranked and re-displayed pursuant to the Routed and Returned
Re-Pricing instruction at the same price. See proposed Exchange
Rules 11.9(a)(2)(B)(i) and (C)(ii). The Exchange provides examples
of the operation of a Hide Not Slide Instruction. See Notice, supra
note 3, at 44526-27. See also Amendment No. 1, supra note 7, for
corrections to Example Nos. 1 and 4.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.6(l)(1)(B)(i) would codify the Routed and
Returned Re-Pricing instruction. Specifically, under the proposed rule,
if a Limit Order was routed away but not fully executed, the returning
remainder of the order, if it would be a Locking Quotation or Crossing
Quotation of a quotation displayed by another Trading Center upon re-
entry to the System, would default to a Routed and Returned Re-Pricing
instruction, unless the User selected either the Cancel Back, Price
Adjust or Hide Not Slide instruction.\64\ The Routed and Returned Re-
Pricing instruction would cause the returning order, that would
otherwise be a Locking Quotation or Crossing Quotation based on an away
market, to re-price one Minimum Price Variation away from the Locking
Price, be ranked at the midpoint of the NBBO, with discretion to
execute at the Locking Price. If a contra-side order with a Post Only
instruction that equals the Locking Price is subsequently entered and
displayed by the System, the order subject to the Routed and Returned
Re-Pricing instruction would be ranked at the midpoint of the NBBO with
its discretion to execute at the Locking Price suspended until there is
no contra-side order displayed by the System equals the Locking
Price.\65\ Thereafter, in response to changes in the NBBO, an order
subject to the Routed and Returned Re-Pricing instruction would be
adjusted and displayed by the System at one Minimum Price Variation
below (above) the NBO (NBB) and ranked at the updated midpoint of the
NBBO with discretion to execute at the Locking Price until the price of
such order reached its limit price; at which point the order would be
displayed at the limit price by the System without further adjustment.
Upon return to the EDGX Book after being routed away, the order will
execute against any marketable contra-side liquidity on the EDGX Book
and any remainder will be subject to the Routed and Returned Re-Pricing
instruction.\66\ The order would receive a new time stamp upon
returning to the EDGX Book and upon each subsequently re-ranking.
Pursuant to proposed Exchange Rule 11.9, all orders that are re-ranked
and re-displayed pursuant to the Routed and Returned Re-Pricing
instruction would retain their comparative time priority at a price
level based upon the time of initial re-entry to the System.\67\
---------------------------------------------------------------------------

    \64\ See Amendment No. 3, supra note 9.
    \65\ Id.
    \66\ Id.
    \67\ Orders that are re-ranked and re-displayed pursuant to the
Routed and Returned Re-Pricing instruction maintain the same
priority as orders that are re-ranked and re-displayed pursuant to
the Hide Not Slide instruction at the same price. See proposed
Exchange Rules 11.9(a)(2)(B)(i) and (C)(ii). The Exchange provides
an example of the operation of a Routed and Returned Re-Pricing
Instruction. See Notice, supra note 3, at 44527. See also Amendment
No. 3, supra note 9.
---------------------------------------------------------------------------

    The Commission finds that the proposed rules related to Regulation
NMS re-pricing are consistent with

Section 6(b)(5) of the Act,\68\ and the rules and regulation
thereunder, including Rule 610 of Regulation NMS.'' \69\ The operation
of Price Adjust, Hide Not Slide and Routed and Returned Re-Pricing are
consistent with Rule 610(d) of Regulation NMS as they should prevent
members from displaying orders that lock or cross any protected
quotation in an NMS stock.\70\ In addition, the Commission notes that
other exchanges offer price-sliding functionality to comply with
Regulation NMS.\71\
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    \68\ 15 U.S.C. 78f(b)(5).
    \69\ 17 CFR 242.610.
    \70\ Rule 610(d) of Regulation NMS requires exchanges to
establish, maintain, and enforce rules that require members
reasonably to avoid ``[d]isplaying quotations that lock or cross any
protected quotation in an NMS stock.'' See 17 CFR 242.610(d).
    \71\ See Nasdaq Rule 4751(f)(7) (Price to Comply Order), BATS
Rule 11.9(g)(2) (Price Adjust), BATS Rule 11.9(g)(1) (Display-Price
Sliding), BATS-Y 11.9(g)(1) (Display-Price Sliding), CHX Rule Art.
I, Rule 2(b)(1)(C)(i) (NMS Price Sliding).
---------------------------------------------------------------------------

ii. Re-Pricing Instructions To Comply With Rule 201 of Regulation SHO
    Proposed Exchange Rule 11.6(l)(2) sets forth the following re-
pricing instructions for an order with a Short Sale instruction to
comply with Rule 201 of Regulation SHO: (1) Short Sale Price Adjust and
(2) Short Sale Price Sliding. Under the proposal, a Limit Order to sell
with a Short Sale instruction that cannot display or execute at its
limit price at the time of entry because of a short sale price
restriction pursuant to Rule 201 of Regulation SHO (``Short Sale
Circuit Breaker''),\72\ would automatically default to the Short Sale
Price Adjust instruction, unless the User affirmatively elects: (1) The
Cancel Back instruction; or (2) the Short Sale Price Sliding
instruction. Like current Exchange Rule 11.5(c)(4)(E), orders to sell
with both a Short Sale and a Short Exempt instruction would not be
eligible for any of the Regulation SHO re-pricing instructions and
instead would execute, display and/or route without regard to whether
the order is at a Permitted Price or if a Short Sale Circuit Breaker in
effect. In addition, when a Short Sale Circuit Breaker is in effect and
the incoming order has a Short Sale instruction, Regulation SHO re-
pricing instructions would supersede Regulation NMS re-pricing
instructions.
---------------------------------------------------------------------------

    \72\ 17 CFR 242.200(g); 17 CFR 242.201. On February 26, 2010,
the Commission adopted amendments to Regulation SHO under the Act in
the form of Rule 201, pursuant to which, among other things, short
sale orders in covered securities generally cannot be executed or
displayed by a trading center at a price that is at or below the
current NBB when a Short Sale Circuit Breaker is in effect for the
covered security. See Securities Exchange Act Release No. 61595
(February 26, 2010), 75 FR 11232 (March 10, 2010). In connection
with the adoption of Rule 201, Rule 200(g) of Regulation SHO was
also amended to include a ``short exempt'' marking requirement. See
also Securities Exchange Act Release No. 63247 (November 4, 2010),
75 FR 68702 (November 9, 2010) (extending the compliance date for
Rules 201 and 200(g) to February 28, 2011). See also Division of
Trading & Markets: Responses to Frequently Asked Questions
Concerning Rule 201 of Regulation SHO, www.sec.gov/divisions/marketreg/rule201faq.htm.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.6(l)(2)(A) would codify the Short Sale
Price Adjust instruction. If selected by a User and a Short Sale
Circuit Breaker was in effect, the sell order with a Short Sale
instruction would be ranked and displayed at the Permitted Price.\73\
Following the initial ranking, the order, to the extent the NBB
declines, would continue to be re-ranked and displayed at the Permitted
Price down to the order's limit price. The order would receive a new
time stamp each time it is re-ranked. All orders with Short Sale Price
Adjust instructions that are re-ranked and re-displayed by the System
would retain their comparative time priority based on their initial
receipt by the System.\74\
---------------------------------------------------------------------------

    \73\ Other exchanges offer similar functionality. See Nasdaq
Rule 4763(e) (Re-Pricing of Orders During Short Sale Period), BATS
Rule 11.9(g)(2) (Short Sale Price Sliding), BATS-Y 11.9(g)(2) (Short
Sale Price Sliding), and CHX Rule Art. I, Rule 2(b)(1)(C)(ii) (Short
Sale Price Sliding).
    \74\ The Exchange provides an example of the operation of a
Short Sale Price Adjust instruction. See Notice, supra note 3, at
44528.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.6(l)(2)(B) would codify the Short Sale
Price Sliding instruction. If selected by a User and a Short Sale
Circuit Breaker was in effect, the sell order with a Short Sale
instruction would be displayed at the Permitted Price and ranked at the
midpoint of the NBBO. Following the initial ranking, the order would,
to the extent the NBB declined, be re-ranked and re-displayed with a
new time stamp one additional time at a price equal to the NBB at the
time of the order's original entry.\75\
---------------------------------------------------------------------------

    \75\ The Exchange provides an example of the operation of a
Short Sale Price Sliding instruction. See Notice, supra note 3, at
44528-29.
---------------------------------------------------------------------------

    The Commission finds that the proposed rules related to Regulation
SHO re-pricing are consistent with Section 6(b)(5) of the Act,\76\ as
well as Rule 201 of Regulation SHO.\77\ Rule 201 of Regulation SHO
requires trading centers to establish, maintain, and enforce written
policies and procedures reasonably designed to prevent the execution or
display of a short sale order at a price at or below the current NBB
when a Short Sale Circuit Breaker is in effect, subject to certain
exceptions.\78\ Pursuant to the Exchange's rules relating to Short Sale
Price Adjust and Short Sale Price Sliding, sell orders with a Short
Sale instruction that cannot be executed or displayed in compliance
with Rule 201 of Regulation SHO would be displayed at the Permitted
Price (i.e., above the current NBB). In addition, the Commission notes
that Short Sale Price Adjust \79\ and Short Sale Price Sliding \80\
operate in a manner that is substantially similar to other exchanges.
---------------------------------------------------------------------------

    \76\ 15 U.S.C. 78f(b)(5).
    \77\ 17 CFR 242.201.
    \78\ 17 CFR 242.201.
    \79\ See BATS Rule 11.9(g)(2), BATS-Y Rule 11.9(g)(2) and Nasdaq
Rule 4763(e).
    \80\ See BATS Rule 11.9(g)(2) and BATS-Y Rule 11.9(g)(2)
---------------------------------------------------------------------------

    The Commission notes that Short Sale Price Sliding permits sell
orders with a Short Sale instruction to be ranked at the midpoint of
the NBBO and displayed at the Permitted Price. The Commission finds
that Regulation SHO re-pricing to permit an order with a Short Sale
instruction to be executed at the midpoint of the NBBO, and displayed
above the NBB, is consistent with Rule 201 of Regulation SHO.\81\
---------------------------------------------------------------------------

    \81\ 17 CFR 242.201.
---------------------------------------------------------------------------

iii. Re-Pricing of Orders With a Non-Displayed Instruction
    Proposed Exchange Rule 11.6(l)(3) would codify the re-pricing of
orders with a Non-Displayed instruction to specify that an order with a
Non-Displayed instruction that is priced better than the midpoint of
the NBBO, would be ranked at the midpoint of the NBBO with discretion
to execute to its limit price.\82\ In response to changes in the NBBO,
an order with a Non-Displayed instruction would be automatically re-
ranked, with a new time stamp, until the midpoint of the NBBO reached
the order's limit price. A User may elect the Cancel Back instruction
for a buy (sell) order with a Non-Displayed instruction where the limit
price is greater (less) than the NBO (NBB). Pursuant to proposed
Exchange Rule 11.9, all orders with a Non-Displayed instruction that
are re-ranked at the midpoint of the NBBO would retain their
comparative time priority based upon their initial ranking at the
midpoint of the NBBO.\83\
---------------------------------------------------------------------------

    \82\ The Exchange explains that because MidPoint Match Orders,
described below, are pegged to the midpoint of the NBBO, the re-
pricing and midpoint ranking of orders with a Non-Displayed
instruction enables the EDGX Book to avoid internally crossed
markets. See Notice, supra note 3, at 44529.
    \83\ The Exchange provides examples of the operation of the re-
pricing of Orders with a Non-Displayed Instruction. See Notice,
supra note 3, at 44529.

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

l. Reserve Quantity and Replenishment Amounts
    Exchange Rule 11.5(c)(1) currently defines a ``Reserve Order'' as
``[a] limit order with a portion of the quantity displayed (`display
quantity') and with a reserve portion of the quantity (`reserve
quantity') that is not displayed.'' The Exchange proposes to reclassify
this function as an order type instruction and relocate the term
``Reserve Quantity'' to proposed Exchange Rule 11.6(m). The term
Reserve Quantity would be defined to mean the portion of an order with
a Non-Displayed instruction in which a portion of that order is also
displayed on the EDGX Book. The Exchange also would specify that both
the portion of the order with a Displayed instruction and the Reserve
Quantity of the order are available for execution against incoming
orders. The Exchange also specifies that where the displayed quantity
of an order is reduced to less than a Round Lot, the System, in
accordance with the replenishment instruction selected by the User,
would replenish the displayed quantity from the Reserve Quantity by at
least a single Round Lot. A new time stamp would be created for the
displayed portion of the order each time it is replenished from the
Reserve Quantity, and the Reserve Quantity would retains its original
time stamp of its original entry.\84\ In addition, the Exchange states
that where the combined amount of the displayed quantity and Reserve
Quantity of an order is less than one Round Lot, the order would be
treated as an order with a Displayed instruction for purposes of
execution priority under proposed Exchange Rule 11.9.
---------------------------------------------------------------------------

    \84\ Other exchanges maintain similar time stamp functionality
when replenishing a displayed amount of an order from the order's
undisplayed quantity. See Nasdaq Rule 4751(f)(2) (Reserve Orders),
and NYSE Rule 13 (Reserve Order Types, Minimum Display Reserve
Order).
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.6(m) also codifies the two replenishment
instructions \85\ currently offered by the Exchange: (1) Fixed
Replenishment; and (2) Random Replenishment. The Fixed Replenishment
instruction sets forth that the displayed quantity of an order would be
replenished by a fixed quantity designated by the User. The Fixed
Replenishment quantity for the order would equal the initial displayed
quantity designated by the User. The displayed replenishment quantity
selected by the System could not be less than a single Round Lot or
greater than the remaining Reserve Quantity. Under proposed Exchange
Rule 11.8(b)(5), the System would automatically default the order to
the Fixed Replenishment instruction with a replenishment value equal to
the displayed quantity of the order.
---------------------------------------------------------------------------

    \85\ Other exchanges offer similar functionality for refreshing
the displayed portion of an order from a Reserve Quantity. See,
e.g., Nasdaq Rule 4751(f)(2) (Reserve Orders) and NYSE Rule 13
(Reserve Order Types).
---------------------------------------------------------------------------

    Under the Random Replenishment instruction, the displayed quantity,
both initial and replenished, would be randomly determined by the
System within a replenishment range and replenishment value established
by the User. The System would randomly select random display in Round
Lots based on: (1) The quantity around which the replenishment range is
established minus the replenishment value; and (2) the quantity around
which the replenishment range is established plus the replenishment
value. The displayed replenishment quantity could not: (1) Exceed the
remaining Reserve Quantity of the order; (2) be less than a single
Round Lot; or (3) greater than the remaining Reserve Quantity.\86\
---------------------------------------------------------------------------

    \86\ The Exchange provides examples of the operation of orders
with replenishment amounts. See Notice, supra note 3, at 44530.
---------------------------------------------------------------------------

m. Routing/Posting Instructions
    In proposed Exchange Rule 11.6(n), the Exchange proposes to define
the following routing and posting instructions that a User may select,
depending on the order type: (1) Aggressive or Super Aggressive; (2)
Book Only; (3) Post Only; (4) Destination Specified; and (5)
Destination-on-Open.
    The Exchange proposes to codify the terms Aggressive and Super
Aggressive. Aggressive is an order instruction that directs the System
to route such order if an away Trading Center crosses the limit price
of the order resting on the EDGX Book. Super Aggressive is an order
instruction that directs the System to route such order if an away
Trading Center locks or crosses the limit price of the order resting on
the EDGX Book.
    Current Exchange Rule 11.5(c)(4) defines the term EDGX Only
Order.\87\ The Exchange proposes to reclassify this function as an
order type instruction and relocate the amended definition and term
``Book Only'' to proposed Exchange Rule 11.6(n)(3). The proposed
definition of Book Only would specify that it is: ``[a]n order
instruction stating that an order will be matched against an order on
the EDGX Book or posted to the EDGX Book, but will not route to an away
Trading Center.'' \88\ References to the Exchange's ``display price
sliding process and short sale price sliding process'' would be removed
from the amended Book Only definition because, as noted above, proposed
Exchange Rule 11.6(l) is proposed to now describe re-pricing
instructions for Regulation NMS and Regulation SHO compliance.
---------------------------------------------------------------------------

    \87\ Currently, the term EDGX Only Order is defined as ``[a]n
order that is to be ranked and executed on the Exchange pursuant to
Rule 11.8 and Rule 11.9(a)(4) or cancelled, without routing away to
another trading center. The System will default to the displayed
price sliding process and short sale price sliding process for an
EDGX Only Order unless the User has entered instructions not to use
any of the processes.''
    \88\ The proposed definition of Book Only is similar to that of
other exchanges. See BATS Rule 11.9(c)(4) (BATS Only Order), BATS-Y
Rule 11.9(c)(4) (BATS Only Order), NSX Rule 11.11(c)(6) (NSX Only
Order).
---------------------------------------------------------------------------

    Current Exchange Rule 11.5(c)(5) defines the term ``Post Only
Order.'' \89\ The Exchange proposes to reclassify this function as an
order type instruction and relocate the amended definition and term
``Post Only'' to proposed Exchange Rule 11.6(n)(4). Currently, the Post
Only definition specifies that order would not remove liquidity from
the EDGX Book unless ``the User enters an instruction to the
contrary.'' The Exchange proposes amend the definition to specify that
an order with a Post Only instruction may remove contra-side liquidity
from the EDGX Book when combined with a Hide Not Slide or a Price
Adjust instruction if the order is for a security priced below $1.00 or
the value of such execution, including any fees charged or rebates
provided, equals or exceeds the value of such execution if the order
instead posted and provided liquidity.\90\ In addition, the Exchange
proposes to remove references to Exchange's ``display price sliding
process and short sale price sliding process'' from the amended Post
Only definition because, as noted above, proposed Exchange Rule 11.6(l)
is proposed to describe re-pricing instructions for Regulation NMS and
Regulation SHO compliance.
---------------------------------------------------------------------------

    \89\ Currently, the term Post Only Order is defined as ``[a]n
order that is to be ranked and executed on the Exchange pursuant to
Rule 11.8 and Rule 11.9(a)(4) or cancelled, as appropriate, without
routing away to another trading center except that the order will
not remove liquidity from the EDGX Book absent an order instruction
to the contrary. A EDGX Post Only Order will be subject to the
displayed price sliding process and short sale price sliding process
unless a User has entered instructions not to use the either or both
processes. . . .''
    \90\ See also Amendment No. 1, supra note 7. The Exchange
further states that 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. Id.
---------------------------------------------------------------------------

    Exchange Rule 11.5(c)(9) currently defines the term ``Destination
Specific

Order.'' \91\ The Exchange proposes to reclassify this function as an
order type instruction and relocate the amended definition and term
``Destination Specified'' to proposed Exchange Rule 11.6(n)(4). The
amended definition would provide that an order with a Destination
Specified instruction may be processed as described in proposed
Exchange Rule 11.10(a)(4), returned to the User, or posted to the EDGX
Book, unless the User instructs that the order reside on the book of
the relevant away Trading Center.
---------------------------------------------------------------------------

    \91\ Currently, the term ``Destination Specified Order'' is
defined as ``[a] market or limit order that instructs the System to
route the order to a specified away trading center or centers, after
exposing the order to the EDGX Book. Destination Specific Orders
that are not executed in full after routing away are processed by
the Exchange as described below in Rule 11.9(a)(4), save where the
User has provided instructions that the order reside on the book of
the relevant away trading center.''
---------------------------------------------------------------------------

    Exchange Rule 11.5(c)(10) currently defines the term ``Destination-
on-Open Order.'' The Exchange proposes to reclassify this function as
an order type instruction and relocate the amended definition and term
``Destination-on-Open'' to proposed Exchange Rule 11.6(n)(6). The
amended definition would state that a Destination-on-Open instruction
may be appended to a Market or a Limit Order and that an unfilled
portion of an order with a Destination-on-Open instruction may be
cancelled or re-routed.
n. Short Sale and Short Exempt
    Currently, certain current Exchange rules refer to the terms
``short sale order'' and ``short exempt,'' \92\ but neither term is
specifically defined. Proposed Exchange Rules 11.6(o) and 11.6(p) would
respectively provide definition for the terms ``Short Sale'' and
``Short Exempt.'' The proposed definitions for Short Sale instruction
and Short Exempt instruction would be consistent with Rules 200(a) and
201 of Regulation SHO.\93\
---------------------------------------------------------------------------

    \92\ See Exchange Rules 11.9(a)(1) and 11.15.
    \93\ See 17 CFR 242.200 et seq.
---------------------------------------------------------------------------

o. Time-In-Force
    Current Exchange Rule 11.5(b)(1)-(3) defines the terms ``IOC
Order,'' ``Day Order'' and ``Fill-or-Kill Order.'' \94\ The Exchange
proposes to reclassify these terms as time-in-force order type
instructions and relocate the definitions, IOC, Day, FOK and Good-`til
Time (``GTT''), to proposed Exchange Rule 11.6(n)(4). The proposed rule
specifies that an order with a TIF instruction of Day entered into the
System before the start of the specified trading session would be
placed by the System in a pending state and activated for potential
execution upon the start of that trading session.
---------------------------------------------------------------------------

    \94\ Current Exchange Rule 11.5(b) includes two (2) additional
TIF instructions of Good-'til-Cancel and Good-'til-Day, which the
Exchange proposes to delete from its rules because they are not
currently offered by the Exchange.
---------------------------------------------------------------------------

    The Exchange proposes to include a new TIF instruction, GTT, which
could be appended to an order in any trading session with instructions
to cancel at a specified time of day. The proposed rule also sets forth
that an order with a GTT instruction would not be eligible for
execution over multiples days \95\ and that any unexecuted portion of
such order with a GTT would be cancelled at: (1) The expiration of the
User's specified time; (2) at the end of the User's specified trading
session(s); or (3) the end of the trading day, as instructed by the
User. As proposed, order with a GTT instruction would not be eligible
for execution over multiple trading days.
---------------------------------------------------------------------------

    \95\ Other exchanges offer TIF instructions similar to GTT. See
CHX Rules Art. 1, Rule 2(d)(3) (Good 'Til Date), BATS Rule
11.9(b)(4) (Good 'til Day), BATS-Y Rule 11.9(b)(4) (Good 'til Day),
and Nasdaq Rule 4751(h)(4) (System Hours Expire Time).
---------------------------------------------------------------------------

p. Trading Center
    The Exchange proposes to add the term ``Trading Center'' to
proposed Exchange Rule 11.6(r) to be defined as ``[o]ther securities
exchanges, facilities of securities exchanges, automated trading
systems, electronic communications networks or other brokers or
dealers.'' \96\ The term would be consistent with the Trading Center
definition of in Rule 600(a)(78) of Regulation NMS.\97\
---------------------------------------------------------------------------

    \96\ The term Trading Center is defined in Exchange Rule 2.11(a)
and appears within Chapter XI.
    \97\ Under Exchange Act Rule 600(a)(78), ``Trading Center'' is
defined 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 242 CFR
600(a)(78).
---------------------------------------------------------------------------

q. Units of Trading
    Current Exchange Rule 11.6 provides that ``[o]ne hundred (100)
shares shall constitute a `round lot,' any amount less than 100 shares
shall constitute an `odd lot,' and any amount greater than 100 shares
that is not a multiple of a round lot shall constitute a `mixed lot.'''
The Exchange proposes to relocate the definition of ``Units of
Trading'' to proposed Exchange Rule 11.6(s). The relocated and amended
definition would provide that a Round Lot is 100 shares, unless an
alternative number of shares is established as a Round Lot by the
listing exchange for the security. Similarly, in proposed Exchange Rule
11.9(a)(6)), the Exchange proposes a conforming change to replace the
term ``99 shares or fewer'' with ``less than a Round Lot.'' Proposed
Exchange Rule 11.6(s) would also state that Round Lots are eligible to
be Protected Quotations.
    Current Exchange Rule 11.5(c)(2) defines the term an ``Odd Lot
Order'' as ``[a]n order to buy or sell an odd lot.'' The Exchange
proposes to revise and relocate the term to proposed Exchange Rule
11.6(s)(2). The definition would be amended to indicate that an Odd Lot
is ``[a]ny amount less than a Round Lot,'' and that orders of Odd Lot
size are only eligible to be Protected Quotations if aggregated to form
a Round Lot.
    Current Exchange Rule 11.5(c)(3) defines the term a ``Mixed Lot
Order.'' The Exchange proposes to revise and relocate the term to
proposed Exchange Rule 11.6(s)(3). The definition would be amended to
indicate that ``[a]ny amount greater than a Round Lot that is not an
integer multiple of a Round Lot,'' and that the Odd Lot portions of an
order of Mixed Lot size are only eligible to be Protected Quotations if
aggregated to form a Round Lot.\98\
---------------------------------------------------------------------------

    \98\ The proposed definitions are similar to Nasdaq Rule 4751(g)
(definition of ``Order Size'').
---------------------------------------------------------------------------

2. Order Types--Proposed Exchange Rule 11.8
    The Exchange has determined that the majority of the existing
individual order types should be reclassified as order type
instructions to be attached to specific, standalone order types.\99\
Accordingly, the Exchange proposes to delete and replace current
Exchange Rule 11.5 with proposed Exchange Rule 11.8, Order Types,\100\
which would outline the characteristics of the six order types that
would be accepted by the System: (1) Market Orders, (2) Limit Orders,
(3) ISOs, (4) MidPoint Match Orders, (5) NBBO Offset Peg Orders, and
(6) Route Peg Orders.
---------------------------------------------------------------------------

    \99\ See Notice, supra note 3, at 44532.
    \100\ Id.
---------------------------------------------------------------------------

    The Commission finds that the proposed rules relating to the
definitions and descriptions of order types are consistent with the
Act. The Commission notes that the definitions and operations of Market
Order, Limit Order, ISO, and MPM Order are substantively similar to the
current rule text, with added specificity related to the operation of
the standalone order type and the order type instructions that may be
attached thereto. The NBBO Offset Peg Order and Route Peg Order are
currently offered by the Exchange, and the related rule text has been
relocated and reformatted to conform to

the reorganization of the Exchange rule book without substantive
amendment. Accordingly, the Commission believes that these proposed
rule changes are consistent with the Act.
a. Market Order
    Current Exchange Rule 11.5(a)(2) defines the term ``Market Order.''
The Exchange proposed to relocate the term to proposed Exchange Rule
11.8(a), and revise it to include additional language describing the
operation of the order type and the order type instructions that may be
attached thereto.
    Specifically, proposed Exchange Rule 11.8(a) would define a Market
Order as ``[a]n order to buy or sell a stated amount of a security that
is to be executed at the NBBO or better when the order reaches the
Exchange.'' The proposed rule also specifies that Market Orders are
eligible to execute during the Regular Session; ineligible to execute
during the Pre-Opening or the Post-Closing Trading Sessions; may be an
Odd Lot, Round Lot, or Mixed Lot; and may include a Stop Price
instruction. Proposed Exchange Rule 11.8(a)(2) would specify that a
Market Order would default to a TIF instruction of Day, unless
otherwise instructed by the User; and that in addition to Day, a User
could append a Market Order with an IOC or FOK instruction. The
proposed rule also sets forth that a Market Order with a FOK
instruction would cancel if not executed in full portion immediately
after entry \101\ and that a Market Order with an IOC instruction would
cancel any unexecuted portion of the order after checking the System
for available shares, and, if applicable, upon return to the System
after being routed to an away Trading Center. The proposed rule also
specifies that a Market Order that does not include a Book Only, IOC or
FOK instruction and cannot be executed in accordance with proposed
Exchange Rule 11.10(a)(4) would be eligible for routing pursuant to
proposed Exchange Rule 11.11.\102\
---------------------------------------------------------------------------

    \101\ See Amendment No. 1, supra note 7.
    \102\ The Exchange provides examples of the operation of Market
Orders. See Notice, supra note 3, at 44533-34.
---------------------------------------------------------------------------

    Under the proposed rules, a Market Order would post to the book in
certain instances. Under proposed Exchange Rule 11.10(a)(3)(A), where
the NBO/NBB is greater/lesser than the Upper/Lower Price Band, an
incoming non-routable buy/sell Market Order would post to the EDGX Book
at a price equal to the Upper (Lower) Price Band, unless appended with
a TIF instruction of IOC or FOK or a Cancel Back instruction.\103\
Under Proposed Exchange Rule 11.8(a)(4), a Market Order appended with
both a Day and a Short Sale instruction that could not execute because
of a Short Sale Restriction, would display pursuant to the Short Sale
Price Sliding instruction.\104\
---------------------------------------------------------------------------

    \103\ Current Exchange Rule 11.9(a)(3)(A) states, ``[w]here a
non-routable buy (sell) Market Order is entered into the System and
the NBB (NBO) is greater (less) than to the Upper (Lower) Price
Band, such order will be posted to the EDGX Book or executed, unless
(1) the order is an IOC Order, in which case it will be cancelled if
not executed, or (2) the User has entered instructions to cancel the
order.'' See also Securities Exchange Act Release No. 69003
(February 27, 2013), 78 FR 14380 (March 5, 2013) (SR-EDGX-2013-08).
    \104\ See proposed Exchange Rule 11.6(l)(2), supra Section
III.C.1.k.ii.
---------------------------------------------------------------------------

    Under the proposed rules, there are also certain instances when a
Market Order would cancel instead of execute. The proposed rule
specifies that if a Market Order with a Book Only instruction is re-
priced when the NBO/NBB is greater/less than the Upper/Lower Price
Band, the order would be cancelled pursuant to proposed Exchange Rule
11.10(a)(4). The Exchange also specifies that, except for a Market
Order that include a Destination-on-Open instruction, any portion of a
Market Order that would execute at a price more than the greater of
$0.50 or five percent worse than the consolidated last sale as
published by the responsible single plan processor at the time the
order is entered into the System, would be cancelled.
b. Limit Order
    Current Exchange Rule 11.5(a)(1) defines a Limit Order as, ``[a]n
order to buy or sell a stated amount of a security at a specified price
or better'' and a ``marketable'' Limit Order as a ``limit order to buy
(sell) at or above (below) the lowest (highest) Protected Offer (Bid)
for the security.'' The term would be relocated to proposed Exchange
Rule 11.8(b), and be amended to include additional language describing
the operation of the order type and the order type instructions that
may be attached thereto. The proposed rule specifies that a Limit Order
is eligible for execution during the Pre-Opening Session, Regular
Session, and the Post-Closing Session, and could be an Odd Lot, Round
Lot or Mixed Lot. A Limit Order could also be appended with the
applicable combination of the following order type instructions: \105\
IOC, FOK, Day, GTT, Displayed, Non-Displayed, Attributable, Non-
Attributable, Post Only, Book Only, Discretionary Range, Reserve
Quantity, Pegged, Minimum Execution Quantity, Stop Limit, Destination
Specified, Destination-on-Open instruction, Aggressive or Super
Aggressive.
---------------------------------------------------------------------------

    \105\ See discussion of Order Type Instructions, supra Section
III.C.1.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.8(b)(7) specifies that a marketable Limit
Order would be eligible to be routed pursuant to proposed Exchange Rule
11.11, unless it was appended with a Post Only, Book Only or Pegged
instruction.\106\
---------------------------------------------------------------------------

    \106\ In the Notice, the Exchange provides order handling
examples of Limit Orders with various order type instructions under
various book conditions. See Notice, supra note 3, at 44535-36. See
also Amendment No. 1, supra note 7, for a discussion regarding (1)
the Exchange joining the NBO, (2) Displayed limit orders with Post
Only or Book Only instructions, and (3) order handling examples that
previously included the Single Re-Price instruction. See also
Amendment No. 3, supra note 9, concerning orders with Routed and
Returned Re-Pricing instructions.
---------------------------------------------------------------------------

c. Intermarket Sweep Order
    Current Exchange Rule 11.5(d)(1), specifies that the System accepts
incoming ISOs (as such term is defined in Regulation NMS) and that to
be eligible for treatment as an ISO, the order must be: (1) A Limit
Order; (2) marked ISO; and (3) the User entering the order must
simultaneously route one or more additional Limit Orders marked ISO, if
necessary, to away markets to execute against the full displayed size
of any Protected Quotation for the security with a price that is
superior to the limit price of the ISO entered in the System. Such
orders, if they meet the requirements of the foregoing sentence, may be
executed at one or multiple price levels in the System without regard
to Protected Quotations at away Trading Centers consistent with
Regulation NMS (i.e., may trade through such quotations). The term
would be relocated to proposed Exchange Rule 11.8(c), and amended to
include additional language describing the operation of the order type
and the order type instructions that may be attached thereto. Proposed
Exchange Rule 11.8(c) would continue to instruct Members that the
Exchange relies on, and it is the Member's responsibility, to properly
mark ISOs, to satisfy the compliance requirements of Regulation
NMS.\107\ The proposed Rule also specifies that a User entering an ISO
with a Day instruction is representing that it has simultaneously
routed one or more additional ISOs, if necessary, to away Trading
Centers to execute against the full displayed size of any Protected
Quotation for the security with a price that is superior or equal to
the limit price of the ISO entered in the System.\108\
---------------------------------------------------------------------------

    \107\ See Notice, supra note 3, at 44537.
    \108\ The ISO exception under Exchange Rule 11.10(f) requires
that ISOs be routed to execute against all protected quotations with
a price that is better than or equal the display price, rather than
solely to protected quotations for a security with a price that is
superior to the ISO's limit price. See Question 5.02 in the Division
of Trading and Markets, Responses to Frequently Asked Questions
Concerning Rule 611 and Rule 610 of Regulation NMS (last updated
April 4, 2008) available at http://www.sec.gov/divisions/marketreg/nmsfaq610-11.htm.

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

    Proposed Exchange Rule 11.8(c)(4) would also specify that incoming
ISOs may be submitted during the Pre-Opening Session, Regular Session,
and Post-Closing Session. Proposed Exchange Rule 11.8(c)(1)-(4) would
also state that an incoming ISO will have a default TIF instruction of
Day, unless the User selects a TIF instruction of GTT or IOC. Incoming
ISOs cannot include a TIF instruction of FOK. The proposed Rule also
sets forth that an incoming ISO with a Post Only and TIF instruction of
GTT or Day, but without a Price Adjust or Hide Not Slide instruction,
would be rejected if, marketable against a resting order with a
Displayed instruction. Any unfilled portion of an ISO with a TIF
instruction of GTT or Day would be posted at the ISO's limit price on
the EDGX Book.
    Proposed Exchange Rule 11.8(c) would specify that an ISO with a
Post Only instruction and TIF instruction of GTT or Day may also be
appended with Regulation NMS or Regulation SHO re-pricing instructions.
    Proposed Exchange Rule 11.8(c)(7) would permit a User to attach an
instruction to an outbound ISO in order to permit that ISO to be
immediately routed to an away Trading Center.\109\ However, pursuant to
proposed Exchange Rule 11.11, inbound ISOs would not be eligible for
routing under any circumstances.
---------------------------------------------------------------------------

    \109\ This Directed Intermarket Sweep Order functionality is
currently provided pursuant to Exchange Rule 11.5(d)(2). See Notice,
supra note 3, at 44537.
---------------------------------------------------------------------------

d. MidPoint Match Order
    Exchange Rule 11.5(c)(7) currently defines an MPM Order as ``[a]n
order with an instruction to execute it at the midpoint of the NBBO.''
The term would be relocated to proposed Exchange Rule 11.8(d), and
amended to include additional language describing the operation of the
order type and the order type instructions that may be attached
thereto. The MPM Order definition would be amended to specify that it
could be a Market Order or a Limit Order, as well as to indicate that
the limit price of an MPM order would represent the highest/lowest
price at which order may buy/sell.\110\ The proposed rule would also
set forth that notwithstanding the co-designation as a Market or Limit
Order, the operation of the MPM Order would be governed by proposed
Exchange Rule 11.8(d).
---------------------------------------------------------------------------

    \110\ For example, if an MPM Order to buy is entered with a
limit price that was less than the prevailing midpoint of the NBBO
it would not be eligible to execute at the mid-point of the NBBO. An
MPM Order to buy with a limit price that is greater than the
prevailing NBBO would be able to execute at the mid-point of the
NBBO and not at its limit price.
---------------------------------------------------------------------------

    Proposed Exchange Rule 11.8(d)(1) specifies that an MPM Order could
be appended with a TIF instruction of Day, FOK, IOC, or GTT. Proposed
Exchange Rule 11.8(d)(2) specifies that an MPM Order could include a
Minimum Execution Quantity instruction. Proposed Exchange Rule
11.8(d)(3) specifies that MPM Orders would default to a Non-Displayed
instruction and are not eligible to include a Displayed instruction.
Proposed Exchange Rule 11.8(d)(5) specifies that, pursuant to proposed
Exchange Rule 11.11, MPM Orders are ineligible for routing.
    Pursuant to the proposed rule, MPM Orders may only be executed
during the Regular Session, and any unexecuted portion of a resting MPM
Order with a Day or GTT instruction would receive a new time stamp each
time it is re-priced in response to changes to the midpoint of the
NBBO. However, an incoming or resting MPM Order would be ineligible for
execution if there was a Locking Quotation or Crossing Quotation. The
ability of the resting or incoming MPM Order to execute would resume,
and the order would receive a new time stamp, when the locked/crossed
condition was resolved and a new midpoint relative to the NBBO was
established, the MPM Order would receive a new time stamp. Similarly,
MPM Orders would be ineligible to execute if the midpoint of the NBBO
was below the Lower Price Band or above the Upper Price Band. Pursuant
to proposed Exchange Rule 11.9, all MPM Orders would retain their
comparative priority based upon order's initial receipt and ranking at
the midpoint of the NBBO.
    The proposed rule would also specify that MPM Orders are eligible
to participate in the Opening Process; but ineligible to participate in
the Pre-Opening Session, Post-Closing Session, or the Contingent Open
pursuant to proposed Exchange Rule 11.7(d). Pursuant to proposed
Exchange Rule 11.7(d), if there is a Contingent Open an MPM Order would
remain ineligible to trade during the Regular Session until a price for
an Open Transaction has been determined pursuant to proposed Exchange
Rule 11.7(c).
e. NBBO Offset Peg Order
    Exchange Rule 11.5(c)(15) currently defines the NBBO Offset Peg
Order. The term would be relocated to proposed Exchange Rule 11.8(e)
and reformatted, without substantive amendment. The NBBO Offset Peg
Order would continue to be defined as a Limit Order that, upon entry,
is automatically priced by the System at the Designated Percentage
\111\ away from the current NBB/NBO for a buy/sell order, or if there
is no NBB/NBO, at the Designated Percentage away from the last reported
sale from the responsible single plan processor. The proposed rule
would specify that notwithstanding its co-designation as a Limit Order,
the operation of an NBBO Offset Peg Order would be governed by proposed
Exchange Rule 11.8(e).
---------------------------------------------------------------------------

    \111\ See proposed Exchange Rule 11.20(d)(2)(D).
---------------------------------------------------------------------------

    The proposed rule also sets forth that the price of an NBBO Offset
Peg Order bid or offer would automatically adjust to the Designated
Percentage away from the current NBB/NBO; or if there is no current
NBB/NBO, to the Designated Percentage away from the last reported sale
from the responsible single plan processor, upon reaching the Defined
Limit.\112\ The proposed rule also sets forth that if an NBBO Offset
Peg Order moves a specified number of percentage points away from the
Designated Percentage toward the current NBB/NBO, the price of such
bid/offer would automatically adjust the Designated Percentage away
from the current NBB/NBO; or if there is no current NBB/NBO, the order
would automatically adjust to the Designated Percentage away from the
last reported sale from the responsible single plan processor. Pursuant
to the proposed rule, cancellation or rejection would result if the
order exceeded its limit price due to an NBBO Offset Peg Order being
priced at the Designated Percentage away from the current NBB/NBO; or,
if there is no current NBB/NBO, to the Designated Percentage away from
the last reported sale from the responsible single plan processor. As
proposed, the absence of a current NBB/NBO and last sale reported by
the responsible single plan processor would also cause the order to be
cancelled or rejected.
---------------------------------------------------------------------------

    \112\ See proposed Exchange Rule 11.20(d)(2)(F).
---------------------------------------------------------------------------

    Under the proposed rule, if a resident NBBO Offset Peg Order was
priced based on the last sale reported by the responsible single plan
processor and such NBBO Offset Peg Order is established as the NBB/NBO,
the NBBO Offset Peg Order would not adjust until either new last sale
reported by the

responsible single plan processor, or a new NBB/NBO was established by
a national securities exchange. However, if a Crossing Quotation
existed, the NBBO Peg Offset Order would automatically price at the
Designated Percentage \113\ (away from the current NBO/NBB for a buy/
sell order).
---------------------------------------------------------------------------

    \113\ See proposed Exchange Rule 11.20(d)(2)(D).
---------------------------------------------------------------------------

    The proposed rule sets forth that NBBO Offset Peg Orders may only
include a TIF instruction of Day; may only be Round Lots or Mixed Lots;
are defaulted by the System to a Displayed instruction and are not
eligible to include a Non-Displayed instruction; and may be submitted
at the beginning of the Pre-Opening Session, but are not executable or
automatically priced until after the first regular way last sale on the
relevant listing exchange for the security, as reported by the
responsible single plan processor. In addition the rule sets forth that
NBBO Offset Peg Orders would receive a new time stamp each time it re-
prices in response to changes in the NBB, NBO, or last reported sale;
would be ineligible for routing pursuant to proposed Exchange Rule
11.11; and would expire at the end of the Regular Session. Finally,
pursuant to Exchange Rule 11.20(d), irrespective of the NBBO Offset Peg
Order, and consistent with its obligations, Market Makers would
continue to be responsible for entering, monitoring, and re-submitting,
as applicable, quotations.
f. Route Peg Order
    Exchange Rule 11.5(c)(17) currently defines the term Route Peg
Order. The term would be relocated to proposed Exchange Rule 11.8(f)
and reformatted to conform to other rule changes, without substantive
amendment. The Route Peg Order is a passive, resting order that does
not remove liquidity or execute at a price inferior to a Protected
Quotation. The Route Peg Order would be defined as a non-displayed
Limit Order that is eligible for execution at the NBB for a buy order
and NBO for a sell order against an order that is in the process of
being routed to away Trading Centers with an order size equal to or
less than the aggregate size of the Route Peg Order interest available
at that price. The proposed rule would specify that notwithstanding its
co-designation as a Limit Order, the operation of a Route Offset Peg
Order would be governed by proposed Exchange Rule 11.8(f).
    The proposed rule would also set forth that Route Peg Orders may
only have a TIF instruction of GTT or Day and would be ineligible to
include a TIF instruction of IOC or FOK; may only be Round Lots or
Mixed Lots; would default to, and could be appended with a Non-
Displayed instruction; but not with the Displayed instruction. In
addition, the proposed rule sets forth that the Route Peg Order could
include a Minimum Execution Quantity but is ineligible for routing
pursuant to proposed Exchange Rule 11.11.
    The proposed rule also set forth that Route Peg Orders may be
entered, cancelled, and cancelled/replaced prior to and during the
Regular Session and all unexecuted portions thereof are cancelled at
the end of the Regular Session. Route Peg Orders would only be eligible
for execution in a given security during the Regular Session, except
during the Opening Session and until orders in a given security can be
posted on the EDGX Book during the Regular Session. Route Peg Orders
would also be ineligible for execution if a Locking Quotation or
Crossing Quotation existed; however the ability of the Route Peg Order
to execute would resume once the locked/crossed condition was cleared.

D. Execution Priority of Orders

1. Priority--Proposed Exchange Rule 11.9
    Current Exchange Rule 11.8 sets forth the priority of order
executions. The Exchange proposes to relocate the provision to proposed
Exchange Rule 11.9 and to amend it to codify and state the following:
(1) The priority of orders at certain price points; (2) the priority of
Limit Orders with a Reserve Quantity; and (3) certain other conforming
and clarifying changes. The Exchange states that its proposed
amendments outline current System functionality in the Exchange's
Rules.
    Under Exchange Rule 11.9(a), orders of Users are first ranked and
maintained by the System on the EDGX Book according to their price.
Orders at the same price and of the same type are then ranked by the
System depending on the time they were entered into the System. The
Exchange proposes to amend Exchange Rule 11.9 to specify how orders
with certain order type instructions are ranked by the System: \114\
(1) At a price other than the midpoint of the NBBO; (2) at the midpoint
of the NBBO; and (3) where buy (sell) orders utilize instructions that
cause them to be ranked by the System upon clearance of a Locking
Quotation.\115\ The Exchange also proposes to provide that, for
purposes of priority under Exchange Rule 11.9(a)(2)(A) and (B): (1) An
ISO \116\ and NBBO Offset Peg Order \117\ are to be treated as Limit
Orders; \118\ and (2) orders subject to a re-pricing instruction to
comply with Rule 201 of Regulation SHO under proposed Exchange Rule
11.6(l)(2), including Market Orders that are displayed on the EDGX Book
pursuant to proposed Exchange Rule 11.8(a)(4) and proposed Exchange
Rule 11.10(a)(3)(A), maintain the same priority as Limit Orders at that
price.
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    \114\ In Amendment No. 3, the Exchange states that it is
currently conducting a review of its System functionality and will
file, as appropriate, any proposed rule changes necessary to clarify
the operation of its order types not covered by this filing by
November 1, 2014.
    \115\ For purposes of priority under proposed Exchange Rule
11.9(a)(2)(A), (B) and (C), the Exchange notes that orders of Odd
Lot, Round Lot, or Mixed Lot size are treated equally.
    \116\ See proposed Exchange Rule 11.8(c), discussed above in
Section III.C.2.c.
    \117\ See proposed Exchange Rule 11.8(e), discussed above in
Section III.C.2.e.
    \118\ See proposed Exchange Rule 11.8(b), discussed above in
Section III.C.2.b.
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2. Prices Other Than the Midpoint of the NBBO
    Current Exchange Rule 11.8(a)(2) states, in sum, that the System
shall execute equally priced trading interest in time priority in the
following order: (1) Displayed size of limit orders; (2) MidPoint Match
Orders; (3) Non-displayed limit orders and reserve orders; (4)
Discretionary range of Discretionary Orders as set forth in current
Exchange Rule 11.5(c)(13); and (5) Route Peg Orders as set forth in
current Exchange Rule 11.5(c)(17). The Exchange proposes to amend the
above priority to state that it applies to equally priced trading
interest at prices other than at the midpoint of the NBBO or where
orders are re-ranked at the Locking Price after a Locking Quotation
clears.\119\ As amended, proposed Exchange Rule 11.9(a)(2)(A) would
state that the System will execute equally priced trading interest
within the System at prices, other than at the midpoint of the NBBO or
where orders are re-ranked at the Locking Price after a Locking
Quotation clears, in time priority in the following order: (1) The
portion of a Limit Order with a Displayed instruction; (2) Limit Orders
with a Non-Displayed instruction and the Reserve Quantity of Limit
Orders; (3) Limit Orders executed within their Discretionary Range; and
(4) Route Peg Orders.\120\
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    \119\ The Exchange also proposes to amend the description of
order types under proposed Exchange Rules 11.9(a)(2)(A)(i)-(iv) to
be consistent with proposed Exchange Rule 11.8, Order Types.
    \120\ See proposed Exchange Rule 11.9(a)(2)(A). See also Notice,
supra note 3, at 44539 for an example illustrating the operation of
priority at prices other than the Midpoint of the NBBO.

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3. At the Midpoint of the NBBO
    The Exchange also proposes to outline a separate priority for
orders ranked at the midpoint of the NBBO under proposed Exchange Rule
11.9(a)(2)(B). Where orders are priced at the midpoint of the NBBO, the
first order priced at the midpoint of the NBBO within each of the
categories set forth in paragraphs (i) through (iv) of proposed
Exchange Rule 11.9(a)(2)(B) shall have precedence at the midpoint of
the NBBO, up to the number of shares of stock specified in the order.
The System shall execute trading interest priced at the midpoint of the
NBBO within the System in time priority in the following order: (1)
Limit Orders to which the Hide Not Slide or Routed and Returned Re-
Pricing instruction has been applied; (2) MidPoint Match Orders; (3)
Limit Orders with a Non-Displayed instruction; and (4) Limit Orders
executed within their Discretionary Range.\121\
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    \121\ See proposed Exchange Rule 11.9(a)(2)(B). See also Notice,
supra note 3, at 44540 for an example illustrating the operation of
priority at prices at the midpoint of the NBBO.
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4. Orders Re-Ranked Upon Clearance of a Locking Quotation
    The Exchange also proposes to outline a priority of orders for
orders that utilize instructions that result in their being re-ranked
upon clearance of a Locking Quotation. In such case, the System re-
ranks and displays such orders at the Locking Price. The Exchange
proposes to include proposed Exchange Rule 11.9(a)(2)(C), which would
state that, where an order is re-ranked to the Locking Price after a
Locking Quotation clears, the System will re-rank and display such
orders at the Locking Price in time priority in the following order:
(1) ISO with a TIF instruction of Day that establishes a new NBBO at
the Locked Price; (2) Limit Orders to which the Hide Not Slide or
Routed and Returned Re-Pricing instruction has been applied; (3) Limit
Orders to which the Price Adjust instruction has been applied; and (4)
orders with a Pegged instruction.\122\ Orders not executed and
remaining on the EDGX Book after being re-ranked upon clearance of the
Locking Quotation will be executed in time priority under proposed
Exchange Rule 11.9(a)(2)(A) described above.
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    \122\ See proposed Exchange Rule 11.9(a)(2)(C). See also Notice,
supra note 3, at 44540 for an example with two scenarios
illustrating the operation of priority for orders re-ranked upon
clearance of a locking quotation. See also Amendment No. 1, supra
note 7, which replaces the order with a Single Re-Price instruction
with an order with a Price Adjust instruction.
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5. Reserve Quantity Priority
    The Exchange proposes to amend Exchange Rule 11.9(a)(6) to modify
the description of the priority of an order with a Reserve Quantity and
to amend certain terms to be consistent with the order type rules under
proposed Exchange Rules 11.6 and 11.8.
    For both the Fixed Replenishment and Random Replenishment
instruction, the displayed quantity receives a new time stamp each time
it is replenished from the Reserve Quantity. The Reserve Quantity
retains the time stamp of its original entry. Current Exchange Rule
11.8(a)(6) discusses the priority of the Reserve Quantity of an order
and states that ``[a] new time stamp is created both for the refreshed
and reserved portion of the order each time it is refreshed from
reserve.'' The Exchange proposes to amend this description to state
that a new time stamp is created only for the displayed quantity of the
order each time it is replenished from Reserve Quantity. In addition,
as discussed above in Section III.C.1.l, proposed Exchange Rule
11.8(m)(1) states that a new time stamp is created for the portion of
the order with a Displayed instruction each time it is replenished from
the Reserve Quantity, while the Reserve Quantity retains the time-stamp
of its original entry.\123\
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    \123\ See proposed Exchange Rule 11.9(a)(6). See also Notice,
supra note 3, at 44540 for an example illustrating the operation of
priority for an order with a Reserve Quantity.
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    The Commission finds that proposed Exchange Rule 11.9 relating to
priority is consistent with Section 6(b)(5) of the Act,\124\ in that it
is designed 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. The proposed rule change codifies
the order handling and execution priority of orders on the EDGX Book
which in turn provides greater transparency for, and thereby benefit,
Members, Users, and the general investing public.
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    \124\ 15 U.S.C. 78f(b)(5).
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IV. Accelerated Approval

    The Commission finds goods cause, pursuant to Section 19(b)(2) of
the Exchange Act,\125\ for approving the proposed rule change, as
modified by Amendment Nos. 1 and 3 thereto, prior to the 30th day after
publication of notice of the filing of Amendment Nos. 1 and 3 in the
Federal Register. Amendment No. 1 removes proposed rule text relating
to the Single Re-Price and Short Sale Single Re-Price pricing
instructions to indicate that the Exchange will no longer offer such
functionality, adds language to the Post Only instruction definition to
provide that the highest possible rebate paid and the highest possible
fee will be used to determine whether the order with a Post Only
instruction will execute against orders on the EDGX Book upon arrival,
adds rationale to the statutory basis section for suspending the
discretion of an order with a Hide Not Slide instruction to execute at
the Locking Price when a contra-side order that equals the Locking
Price is displayed by the System on the EDGX Book in order to avoid an
apparent violation of that contra-side displayed order's priority, and
makes a series of non-substantive, corrective changes to the Notice.
According to the Exchange, Amendment No. 1 reflects the Exchange's
efforts to simplify its proposal and streamline System functionality,
thereby benefiting Members, Users and the investing public by making
the rules and functionality easier to understand. According to the
Exchange, Amendment No. 3 clarifies the operation of the Routed and
Returned Re-Pricing instruction, thereby making the rules and
functionality easier to understand. Accordingly, the Commission does
not believe that Amendments No. 1 and 3 raise any novel regulatory
issues and therefore finds that good cause exists to approve the
proposal, as modified by Amendment Nos. 1 and 3, on an accelerated
basis.
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    \125\ 15 U.S.C. 78s(b)(2).
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V. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment Nos. 1
and 3 to 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-EDGX-2014-18 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-EDGX-2014-18. 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-
EDGX-2014-18 and should be submitted on or before November 25, 2014.

VI. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\126\ that the proposed rule change (SR-EDGX-2014-18), as modified
by Amendment Nos. 1 and 3, be, and hereby is, approved on an
accelerated basis.
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    \126\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\127\
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    \127\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-26127 Filed 11-3-14; 8:45 am]
BILLING CODE 8011-01-P